No Due Diligence Period - Why?

3 Replies

I may be missing something, but what is the reason to bite on a listing/property offering that explicitly states no diligence? 

From what I understand about having a due diligence period, even a few days worth, is to understand underlying tax implications, severe property issues invisible by just a quick walk through, or title issues etc. 

What is the benefit from an investor stand point of completely foregoing their option to due diligence just at the sellers request? Do any of you have any experience with going forward with a property and not doing any further digging into the state of the property at the sellers request? I see listings from time to time that explicitly state "NO DUE DILIGENCE" and it immediately raises flags for me. 

Any thoughts are welcomed. 

In a hot market, it's going to make your offer more competitive.

I don't think anyone would advocate for doing no due diligence. There's a difference between that and not having a due diligence period in the contract where you can cancel and get your earnest money back.

There's nothing preventing you from doing your due diligence before making the offer, and then foregoing the due diligence / inspection period. You may run the risk of the seller accepting another offer before you finish your due diligence and may be out those inspection fees and your time, but that's about it.

It's an effective way for a seller or seller's agent to weed out the BS offers and pick from the serious ones. I know more than a couple agents that will advise their sellers to only take offers with $10k earnest money and zero contingencies if it's a fixer upper / investor listing

The more familiar you are with your market and houses in those markets the faster you'll be able to comp those properties and also estimate costs for things

Hey @Evan Parker! When I've seen "NO DUE DILIGENCE" language in the past, I've understood it to mean that one should do all inspecting and evaluating before submitting a binding purchase agreement. This agreement would therefore have no DD clause in it. This appears to be more common with junker properties that will need considerable work.

However...

If the offering is preventing due diligence and denying inside access, then I 100% agree with you: That's just crazy-talk! No way would I buy a property blind, unless I'm just buying it for the land it sits on.

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Several possibilities: The folks who grab up offers like that have other motives.  

1) Maybe their intention is to bull doze and build from scratch, so the condition of the house itself makes no difference.  So long as the property isn't chemically contaminated, they'll take the house and just knock it over.

2) They buy 50 properties sight unseen, knowing that a handful will be absolute disasters, but the law of large numbers are in their favor that the ones that's aren't terrible can be purchased cheap enough to where it doesn't matter.

3) They have a rehab crew / contractor and they just need a junker property to keep them busy on days when they aren't working on another major project.  Employees and contractors tend to wander off when not busy, so better to keep them working.

4) They are disreputable RTO Sellers who purchase junkers, slap some paint on them, put down some carpet, mark them up 20-30%, lease option them to tenant/buyers for a huge down payment, and also offload all the maintenance responsibilities on the "Buyer". Then after 2 years they repo the house and do it all over again. To be clear, I am not saying ALL RTO sellers do this, but this is a typical scam by the disreputable ones.

5) None of the above...something else.

These kinds of deals typically aren't for the casual, one-house-at-a-time investor.